EyeforTravel Europe 2018

June 2018, London

Chinese cash crunch for hoteliers but tech still rising

As Chinese investment in hotel real estate dries up, consumer behaviour continues to drive growth in the tech sector. Sally White reports

Western hotel chains are facing an investment crunch as the flow of Chinese investment seems to be coming to an end, forcing them to search elsewhere for growth funding. Chinese money has been funding real estate purchases, which well suited large operators’ ‘asset light’ model, leaving them to focus on managing. This pullback is coming at a time when chains are meeting heavy demands to respond to traveller preferences for electronic guest services and rolling out new concepts, such as Hilton Tru and a fresh ‘urban, affordable’ brand.

Ironically, among the major calls on the chains’ funds is the need to cater to the preference of the fast-growing numbers of China’s well-off and travel-hungry millennials for online communication. As Lee McCabe, the VP of North America at China’s mega-e-commerce platform Alibaba Group, told a press conference, the lack of retail infrastructure has meant that Chinese spending has been driven by mobile and digital transactions and this communication model has been carried over to travel.

Interactive and social

Chinese travellers’ preferences, outlined in a report from China’s Huran Research in collaboration with Marriott International, include a butler service and interactive digital services that provide “an enhanced level of personalised service that is not overly attentive”. They want to see interactive digital services in hotels, and rely heavily on social channels for travel tips from friends, brands and travel advisers, the report says. Young travellers use the WeChat brand as their primary source of information, including WeChat Moments shared by friends and WeChat subscription accounts. Third-party apps such as C-Trip, Qunar and Tuniu are also popular.

Chinese groups have spent nearly $12-billion over the past two years, according to Dealogic, in buying major stakes in hotel groups or landmark properties. Now, investment from Chinese groups has “slowed in a meaningful way”, said CEO of Hilton Worldwide, Chris Nassetta, at the International Hotel and Investment Forum this month. Chinese Investment has dropped to 9% of deals from 62% in 2015.  He made these comments as China’s giant HNA Group revealed plans to sell “some or all of” the 25% stake it has in Hilton (bought for $6.5billion in 2016).

Investment from Chinese groups has “slowed in a meaningful way,” says Hilton

Behind the change in Chinese strategy is pressure from the authorities to clamp down on heavy overseas spending by the big companies, preferring that they should buy technology and not hotels, cut their heavy borrowings and spend at home. Analysts say that this makes the country’s major state-owned banks, which helped bankroll the expansion into international hotels, more reluctant to lend. (HNA is on the hook, according to Bondcritic estimates, for an eye-watering $100 million in debt after a shopping spree that included the Radisson chain). Anbang, the huge insurance group whose portfolio includes the iconic Waldorf Astoria hotel, was recently taken over by the Chinese government, which is prosecuting its chairman for “economic crimes.”

The strategy of these groups was to diversify their investments internationally and to follow their compatriots abroad - the United Nations World Tourism Organisation rates China as the largest outbound tourism market. And, as international consultancy group Deloittes’ travel practice points out, Chinese travellers know which hotels are owned by their compatriots and “there is a natural affinity to use them”.

However, while the rate of new Chinese investment in hotel property may be slowing, Euromonitor points out that the likes of Chinese conglomerates HNA Group and Jin Jiang (which has a chunk of Accor and the French Louvre Hotels Group among many other Western interests) are not going to dump their Western assets in any hurry.

Technology still rising

And Chinese investment in hotel technology is still growing fast. Shiji, a Beijing-based maker of software for hotels has just attracted a $486-million investment from Alibaba (which owns the major Chinese Taobao Travel agency.) Shiji, which supplies many of the Western names in China, including Disney, InterContinental Hotels, Kempinski and Shangri-La, has been expanding into Western Europe and North America. Deals have included Snapshot, which offers a data solutions for hotels, Munich-based Hetras, that has a cloud-based hotel management application, front-desk management system provider StayNTouch and DHISCO, North America’s largest hotel management and connectivity provider.

Chinese investment in hotel technology is still growing fast

Meanwhile, Chinese conglomerate Fosun is said to be considering an IPO of its travel interests. According to Reuters it is in talks with banks to list its tourism business, which includes Club Med and a JV with Thomas Cook, and raise at least $500 million. Fosun is apparently considering spinning off the unit sometime early this year and is likely to pick Hong Kong as the listing venue. Success could leave it still in control, but give access to fresh funding and cut borrowings.

Others too are beginning to queue up to replace the Chinese investors. Bankers Credit Suisse comment that European hotels are attractive to investors from Japan, Korea, Singapore and Malaysia. European private equity firm Algonquin sees strong flows from Europe itself because of “institutional investors’ massive shift to real estate”, and names the Norwegian Sovereign Wealth Fund as an example.

For the Chinese, responding to the pressure from the authorities to switch their focus to technology, however, may not be that easy. The West rates its technology above its hotels, it seems! HNA’s plan to invest in a JV with Global Eagle Entertainment, the major US in-flight Internet service provider, failed to pass US security reviews by the Committee on Foreign Investment in the US (CFIUS). An unnamed source told Reuters that an area of concern for CFIUS was “the protection of customer data that passed through Global Eagle’s in-flight Wi-Fi service”.

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